Source: Assureweb: All figures based on a 65 year old male, £60,000 pension fund, payable monthly in advance, no escalation or additional guarantee periods. The enhanced rates assume the client is a 20/day smoker with a previous history of heart problems

Last year we saw the European Court of Justice ruling regarding the legality of gender-based pricing in insurance underwriting. The court ruled that taking into account gender when underwriting insurance products was discriminatory, and therefore should not be permitted under EU law. The ruling impacts on many forms of insurance including pension annuities. After December 21st of 2012, the practice of using gender as a factor when compiling a quote for an annuity will be prohibited under EU law, although many annuity providers are expected to adjust their pricing well before this date.

Prior to this ruling annuity providers have based their annuity quotes on a number of different factors such as age, location, health and of course GENDER.  

On average women live longer than men and as a consequence were offered annuity lower rates.  This is because the providers were calculating that they would have to payout income to women for a longer time period than men (on average).  Now the court has effectively outlawed this practice, rates will have to be equalised.   Although you might expect these new ‘unisex rates’ to rest half way between current male and female rates, it appears that many providers will in fact be offering ‘unisex rates’ just above current female rates.

Ironically many women will in fact be worse of as a consequence of this ruling as 80% of annuities are bought by men to support them and/or their partner.  So the potential fall in male annuity rates is bad news for the majority of families.

We expect the demand for annuities to rise during 2012 as men try to secure better rates before the rules change.  As always we recommend seeking specialist advice before committing to an annuity purchase especially for those looking for a way to secure the best deal in the face of lower rates.

So is now the right time to defer or should you purchase an annuity?

There are numerous factors that need to be taken into account in deciding if now is the right time to buy or defer an annuity.  But one area that may be overlooked is your health status.

If you currently qualify for an enhanced annuity, there are additional considerations to take into account that may not be immediately obvious – what are the implications if your health improves? What if it deteriorates?

If you do not currently qualify for an enhanced annuity, then you may want to look at the new Fixed Term Annuity contracts* – which can includes a conversion feature enabling conversion to an enhanced annuity should your health deteriorate at any time during the fixed term.

For Free advice on your options, please call our Advice Line Free on 0800 0842265.

*Fixed term annuity contracts pay a fixed income for a fixed term then have a guaranteed maturity value at the end of the term, which can be used to buy another fixed term annuity, a lifetime annuity or a drawdown contract.  These contracts can be very effective if your health deteriorates because you can still obtain enhanced rates that would not have been available at outset.

There were no surprises in the Act from a pension viewpoint just the expected confirmation of the backdated provisions, effective from 06/04/2011, such as:

a) New Drawdown Pension rules (maximum income 100% of the relevant Government Actuary’s Department (GAD) rate and 3 year review cycles before 75);

b) The introduction of flexible drawdown option

c) The introduction of lower £50,000 annual allowance with accompanying carry forward provisions

d) The reduction in the standard lifetime allowance to £1,500,000 (effective from 06/04/2012) 

For some clients these are significant changes to how pensions are accumulated and decumulated.

If you would like more information on how the new rules might affect you.  Or would like quotes on drawdown or flexible pensions and how they compare with annuities, please call us Free 0800 0842265.

The PICA proposals include removing the pension provider default annuity option from pre-retirement communications and replacing it with a ‘pension passport’ document intended to prompt the recipient into taking action.

Our comment: This story appeared in the Mail on Sunday yesterday, I am only suprised it has taken this long.  Most insurance companies treat their clients with a combination of contempt and apathy and seem to think it is perfectly acceptable to take several weeks to send out transfer/discharge paperwork.  The worst companies tend to be the ones that offer the lowest in-house annuity rates, I dont know if this is coincidence.  Delays can be extremely frustrating if people have actually retired and are waiting for their tax free cash and income to start.  Unfortunately, until some clear rules are put in place to force pension companies to meet sensible service standards things are unlikely to change.   Our advice is to be prepared for delays, and get the ball rolling 3 months before you actually expect to retire.

Meanwhile, charity Age UK warned of growing anger about Government plans to accelerate increases to the state pension age, which it said denied millions of people the chance to plan properly for their retirement. The Prudential research found that women were significantly more likely than men to retire on below £14,400 – 40 per cent compared with 30 per cent of men.

Source : Daily Express page 33 – 30.3.11. Also reported in Daily Mail page 11.

The present system “works against the achievement of the objective of equal treatment between men and women and must be considered to be invalid upon the expiry of an appropriate transitional period,” the EU Court of Justice, the 27-nation region’s top court, ruled today. “Unisex premiums and benefits will apply from Dec. 21, 2012.”

Decisions by the Luxembourg- based tribunal are binding and can’t be appealed!

An EU law on the equal treatment of men and women, introduced in 2004, allows the region’s countries to differentiate between sexes when calculating insurance premiums if data shows “sex is a determining factor in the assessment of risk.”

Many European insurers calculate premiums according to the risk associated with an individual. For example, they charge women more for annuity coverage and less for mortality insurance, as a result of their longer average life expectancy. Today’s decision will prevent them from continuing to do so.

The impact of this ruling is likely to mean that annuity rates for women will rise and for men will they will fall.  However we will have to wait and see the impact in £’s because mens pension pots are generally larger than womens which could dilute the negative impact on male annuity rates (now unisex rates, as we will have to call them).  

The case is: C-236/09, Association Belge des Consommateurs Test-Achats and Others.

If it is found to be discriminatory, annuity companies will be forced to re-price their annuities.  This will mean male annuity rates will fall and female annuity rates will rise and just one unisex annuity will be available.  However on average men have significantly higher pension pots than women so this does not seem like a good outcome for single men or families. 

If you would like to talk about the options or obtain a quote on how much income you can get from your pension pot, please give us a call.